If you’re a salaried employee in Israel, you’ve probably noticed that a chunk of your paycheck disappears every month for income tax (Mas Hachnasa). But how is that number actually calculated?
Income tax in Israel is progressive
That means the more you earn, the higher your tax rate. Your income is divided into brackets and each bracket is taxed at a different rate. The first few thousand shekels you earn each month are taxed at a low rate, and as your income rises, the next portions are taxed more. The top portion of your salary is taxed at the highest rate.
This means that there’s no reason to limit your income for fear of finding yourself in a higher tax bracket. More income always means more money in your pocket, even if the percentage is lower.
Income tax is calculated annually, but deducted monthly
Even though income tax is based on your annual income, your employer withholds it each month. At the end of the year, the tax authority looks at your total income and checks whether you overpaid or underpaid, which is why you might be entitled to a tax refund or need to pay extra.
You might be entitled to a tax refund if your employer withheld too much tax because you changed jobs, worked part of the year or earned less than expected. Other frequent situations include missing credit points for children, military service or pension contributions that weren’t fully accounted for.
If you think you might be entitled to a refund, submit a Bakashat Hechzer Mas directly to the Israel Tax Authority online or in person at their offices. There are companies that will file this document for you. They usually charge a percentage of your refund (often around 10–20%), so if your situation is simple, it’s probably not worth it.
Tax credits lower what you owe
Everyone gets a certain number of credit points (Nekudot Zikuy) that reduce their tax bill. Each credit point is worth a specific amount of money per month (around 235 NIS). The more credit points you have, the less tax you pay.
You automatically get some credit points just for being an Israeli resident, and additional points may apply for:
- Being a parent
- Being a new immigrant (oleh)
- Completing army or national service
- Having higher education or professional training
- Living in a development area
- A child’s disability
Your HR department or accountant should make sure you’re getting all the credit points you’re entitled to, but it’s always worth double-checking.
Deductions for pension and Bituach Leumi
Your employer also deducts:
- Bituach Leumi (National Insurance)
- Health insurance contributions
- Pension contributions
These deductions are separate from income tax but appear together on your payslip, which can be confusing.
What if you have more than one job or freelance income?
If you work for more than one employer or also freelance, you need to report your total annual income so you’re taxed correctly overall. Otherwise, you could end up paying too little (and owing at the end of the year) or too much (and needing to request a refund).
If you are entirely self-employed, you’re responsible for calculating and paying your own income tax and Bituach Leumi. This involves filing an annual tax return to report your actual income, claim deductions and pay any balance owed (or receive a refund if you overpaid).
How to estimate your annual tax
You can use the Mas Hachnasa calculator on the Tax Authority website. Plug in your monthly income and see an estimate of your annual tax, deductions and take-home pay.
Why it’s important to understand taxes
Your employer handles the actual tax payments for you, but it’s still smart to understand how the system works. Knowing how your income tax is calculated helps you:
- Spot mistakes on your payslip
- Claim refunds you might be owed
- Plan ahead if you get a raise or change jobs
Understanding your taxes means understanding your real income and not getting blindsided when your pay slip comes or at the end of year.
